LONDON — The British economy on Friday was officially declared in recession as a galloping economic crisis has driven down the value of the British pound to a 23-year low and threatened to remake the country's political landscape.
Britain's Office for National Statistics said Friday that the economy contracted by a stunning 1.5 percent in the fourth quarter of 2008. That followed a 0.6 percent contraction in the three months between July and September.
Recessions typically are defined as two consecutive quarters of economic contraction, and the last time Britain found itself in this state was in 1991. Like the United States , Britain is wrestling with a financial crisis that seems only to grow worse.
Evidence of the storm is everywhere. The unemployment rate is now 6.1 percent, up almost a full percent from a year ago, and this week the government of Prime Minister Gordon Brown unveiled a second big package to stimulate lending by banks, including a guarantee plan to protect them against losses on bad assets.
Britain also increased the government's stake in the Royal Bank of Scotland to 70 percent, giving it a controlling interest. As in the United States , British banks have come under fire for failing to increase their lending to consumers and businesses despite receiving a big injection of government capital last October.
The British pound fell 7.3 percent against the dollar this week to close at $1.3673 . During Friday trading, the pound briefly touched $1.3570 , its lowest point against the U.S. dollar since 1985. It fell to record lows this week against the Japanese yen.
Some big-name currency traders have suggested that the pound "is finished," a charge that provoked a strong reaction from Brown on Friday. Brown admitted that "nobody" saw the "possibility of complete market failure," but he said that an American stimulus package due to be completed in the coming weeks "will give Britain and the rest of the world a boost" and that the pound will regain its lost value.
Behravesh and others, however, think that Britain's recession will be even deeper than the one unfolding in the United States , which already is expected to last longer than any other one since the Great Depression. The British economy will contract by 3 percent to 3.5 percent before it starts to recover, he said.
The drop in the pound has hit Britons hard. The country has refused to adopt the euro, the currency used in much of the European Union , and that's left the pound more vulnerable as the economy shrinks and the banking system slides deeper into disarray.
The pound is the world's third most popular reserve currency, behind the dollar and euro, and the fourth most traded currency, after the dollar, the euro and the yen, and its fall has reignited debate over adopting the euro.
Nick Clegg , the leader of the Liberal Democrats, the country's third-largest political party, said Britain had an "extremely dangerous" exposure to global money flows and that switching to a "major reserve currency" would offer stability and protection.
Some financial experts agree.
"Why would you at this point buy sterling assets and add to your risk when the UK economy is disastrous?" asked Paul Goldschmidt , a former director of investment bank Goldman Sachs & Co. , and a former European financial policymaker.
Now an analyst for the Thomas More Institute , a research center in Brussels , Goldschmidt said that a shift to the euro would reduce currency risks for British businesses and give the entire region more muscle globally.
A national poll last month, however, found that more than two-thirds of British citizens prefer to stick with their beleaguered currency.
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